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How Biden Plans to Tackle the $1.6 Trillion Student Loan Debt | WSJ - YouTube
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- [Narrator] Over the past decade,
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student loan debt has
skyrocketed in the US.
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By December 2020, 43 million Americans
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owed the government a
collective $1.6 trillion.
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That's putting pressure on
president elect Joe Biden.
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- We know that in the 21st century,
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12 years of schooling is not enough
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and that young people are getting crushed
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by the burden of student debt.
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- [Narrator] Democrats want Biden
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to issue an executive
order to forgive some loans
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if a bill can't get through Congress,
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but opponents say that
would unfairly assist
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high income earners while
increasing the existing burden
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on tax payers.
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- What's happening is a lot of people
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are not sending in payments
to the education department.
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About 1/3 of the $1.6 trillion
that's on the books currently
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is not gonna get repaid
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which basically means taxpayers
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are going to have to cover that somehow.
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- [Narrator] So what will Joe Biden do?
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First, he wants to bring back a policy
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sought by congressional
Democrats early in the pandemic.
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- The legislation passed
by the democratic house
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calls for immediate $10,000
forgiveness of student loans.
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It should be done immediately
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- [Narrator] From there,
Biden says he wants to start
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by revamping the existing
forgiveness options
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offered by the Federal government.
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- There are these programs in place
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called income-based repayment
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and the first of these was actually passed
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under the Clinton administration.
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You know, Bill Clinton
actually liked the idea
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of having students actually pay a share
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of their income each month
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rather than a fixed dollar amount.
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- [Narrator] One example of
these programs is called REPAYE
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which stands for revised pay as you earn.
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In REPAYE plans, anyone who's struggling
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to pay their student loan
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can send a new minimum payment that is 10%
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of their income over $25,000.
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If the borrower makes
these payments on time
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for 20 to 25 years, the
government will forgive
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the remaining balance of the loan.
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- Now keep in mind,
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this is 10% of your discretionary income.
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So for some people, it
might not make sense
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if you're making a lot of money, you know,
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and 10% actually might be higher
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than what your standard repayment is.
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So you kinda have to look at it
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and see if it makes sense,
but anyone can do this.
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You're entitled to enroll in this program.
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And a lot of people have,
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enrollment in this program has surged.
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- [Narrator] But there's a
catch, the forgiven balance
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of the loan is counted
as income on your taxes.
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- You know, if you think about it,
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that tax bill can actually be really high.
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Let's say you owe $100,000
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at the end of that 20 year program, well,
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that's $100,000 of income.
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And so that could be thousands
of dollars in a tax bill
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that you face right then and there
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at the end of your repayment plan.
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- [Narrator] Biden's
proposal changes this program
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in a way that draws less
money from borrowers.
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The minimum payment rate for
these plans would be reduced
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from 10% to 5% of a borrower's income
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after their first $25,000 earned.
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And Biden wants to make it
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so that forgiven debt
won't be taxed as income.
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Biden also wants to sweeten
the terms of forgiveness
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for public sector, like
teachers, military personnel
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and also employees of nonprofits.
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People in these career fields already have
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their debts forgiven,
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tax-free after 10 years of public service
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but Biden wants to relieve
some of their debts
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on a shorter timeline.
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Biden has said that the current program
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isn't working as intended.
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- There is a program that exists now
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under the law that forgives student loans
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for being able to engage
in a public service.
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I'm gonna institute that
fundamental change in that
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so it's able to be available to everyone
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that in fact is engaged.
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It's not being very
well managed right now.
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So I'm gonna do all of those things.
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- [Narrator] Some say that
contractors are to blame
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for the management issues.
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- The contractors that the
education department uses
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to deal with students
who have student loans
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have gotten a lot of things wrong.
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So what you've seen is there
have been a lot of instances
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of where people thought
that they were on track
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to get forgiveness and then
they learned that they're not
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and they maybe have to start all over.
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So this program has
turned out to be a mess
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and he wants to fix that.
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- [Narrator] Members of
both political parties
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think that the Federal Student
Loan Program needs an update.
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- One of the big differences right now
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is on the democratic side.
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They're saying, cancel
student debt right now
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and then we'll worry about
reforming the program.
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Republicans are saying, wait a minute.
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The first thing we need
to do is fix this program
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to solve the underlying
problems in the first place.
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- [Narrator] Any student
loan debt that's forgiven
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is covered by taxpayers.
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Mr. Biden says he'll pay for
expanded debt forgiveness
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by reversing parts of
the tax cuts of 2017.
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- For a lot of his plans, he
wants to, you know, raise taxes
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on higher owners on our
corporations, corporate profits.
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So more broadly he's
talked about doing that.
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- [Narrator] Another issue
is who exactly benefits
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from expanded loan forgiveness programs?
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- Most student debt is
actually held by people
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who are in upper income households.
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The Brookings Institution
shows that 60% of student debt,
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so more than half of the
1.6 trillion on the books
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is held by people who are
making $74,000 a year or more.
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- [Narrator] But if debts are forgiven,
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the smaller payouts given
to lower income households
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are likely to have a bigger impact
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on that household's finances.
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In recent years, roughly one
in five student loan borrowers
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fell behind on their payments
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according to the Federal
Reserve Bank of New York.
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That's a sign that many
remain at risk of default
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on their student loan which
could impact their credit
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or even lead to garnished wages.
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- If you look at the number of people
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that have defaulted on their loans,
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it's almost the same
as the number of people
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who lost their homes
during the housing crash.
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This was almost unheard of, you know,
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in the early 2000s that
there would be someone
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calling for canceling student debt.
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So it shows just how much
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of a middle-class anxiety this has become
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in just the past 10 years.
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- [Narrator] And Biden hopes
to relieve that anxiety
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over the debts in his first term.
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